An organization needs to effectively use analysis tools and methodologies to compare and understand the potential of two or multiple business solutions. VRIO is an analysis framework to understand the true potential of an organization and its resources. Besides VRIO, there are other analysis frameworks and methodologies well adopted in the industry such as SWOT and PESTEL analysis. Which one to implement when and for what purpose? Let us figure that out!
Scope and purpose of VRIO
VRIO is used to understand the internal performance potential of a business. VRIO stands for Value, Rarity, Imitability, and Organization. With the help of these four parameters, it can be gauged how the company is managing its resources, capacity, technologies and true potential as a whole. In an ideal scenario, assets and resources if valuables, inimitable, rare, and managed to their true potential the company will grow and excel in the market.
How different is VRIO from SWOT?
The scope of VRIO is more aligned with the internal operations of the company in terms of resources and assets. While SWOT helps to look into the external challenges and identify new opportunities for the company and its value.
Advantages of SWOT over VRIO
SWOT provides a bird’s eye view of the company or business considering all the involved avenues such as external and internal threats, scope, opportunity, and weakness. Moreover, SWOT is an easier analysis tool as it does not micro-analyze any one stakeholder or any particular part of the value chain.
Why use VRIO over SWOT?
VRIO is a more detailed and elaborative analysis of different aspects of the organization such as resources and assets. Factors analyzed in SWOT are sometimes not well defined and often do not provide a conclusive summary for the decision-makers in strategy execution. Unlike the SWOT analysis which is an overall view of the company, VRIO is a more detailed and elaborative analysis of each resource of the company. VRIO helps the directors examine if the company is utilizing the resources to their full potential and where the company stands in terms of resource and technology optimization.
VRIO and PESTEL investigate different areas of the business
PESTEL helps to analyze the macro-environmental external factors namely political, economic, social, technological, environmental, and legal situations which can impact the way of operations of the company. While with the help of VRIO analysis, the company explores and scrutinizes its internal production facilities, resources, technological investments, and asset utilization.
Which tool to use among VRIO, PESTEL, and SWOT for analyzing a business solution
VRIO, SWOT, and PESTEL are all important analysis tools and have been used by industry experts for a very long time. VRIO was developed in 1991 and has been used ever since. While SWOT and PESTEL were developed and introduced in the 1960s and are more commonly used than VRIO. However, all three tools have different objectives and can help to solve different business solutions. SWOT is preferred if the objective is to get a holistic view of the internal and external strengths and weaknesses of the company while the VRIO provides a more detailed analysis of the company’s operation. If the objective is to understand and enhance the internal performance of a company the decision makers should sort to VRIO. However, PESTEL should be implemented to understand not the company and its operation but the environment in which the company does its business.
Raziya Kotadiya / LinkedIn
Research Analyst at Cognitive Market Research
With a demonstrated history of working in the market research covering qualitative and quantitative research. Skilled in Strategic Forecasting, Market Research, Competitive Intelligence, Business Development, Trend and Opportunity Analysis and Data Visualization.